Competition Law Newsletter January 2014

Competition Law Newsletter January 2014

Competition Law Newsletter January 2014

On 19 December 2013, the Court of Justice of the European Union handed down the judgment in joined cases C-239/11 P, C-489/11 P, C-498/11 P (Siemens v. Commission, Mitsubishi Electric v. Commission and Toshiba v. Commission, jointly the "Appellants"), for an illegal collusive tendering cartel in the market for gas insulated switchgear ("GIS"). Although all of the Appellants' claims were dismissed, this judgment further highlights the interpretation of the Court of Justice in regards to Single and Continuous Infringement ("SCI") and the right to hear witnesses.

On appeal, the Court of Justice dismissed Toshiba's argument that in concluding that there was a SCI, the General Court should have examined whether the various instances of conduct had a single objective and constituted complementary conduct. Instead, the Court of Justice stated that although the GC should assess whether or not certain conduct forms part of an overall plan, the GC is not required to examine an additional condition of complementarity.

Furthermore, the Court of Justice confirmed that although evidence of a SCI may be interrupted for certain specific periods, it does not preclude a finding that the SCI was established during a "more extensive overall period", if there are objective and consistent indicia to support that the various acts "pursue a single purpose and fall within the framework of a single and continuous infringement".

Regarding the fundamental rights arguments brought forth by the Appellants, the Court's position on the right to hear witnesses is noteworthy. Siemens claimed under Article 6(1) and 3(d) of ECHR that it has the right to examine witnesses and that the General Court should have of its own motion given the opportunity to Siemens to question a specific witness. The Court of Justice confirmed that it is established in its jurisprudence that during the administrative procedure, the Commission is not required to afford undertakings the opportunity to examine witnesses. In addition, it is for the parties, not the GC of its own motion, to request by a measure of inquiry to examine incriminating witnesses. The right is also not absolute, as it is left to the GC's discretion to grant or deny the request, which is compatible with Articles 6 and 3 ECHR.

2. Court of Justice held that national legislation imposing an obligation to participate in a scheme of compulsory minimum tariffs does not breach EU competition law

On 12 December 2013, the Court of Justice of the European Union published its judgment in Ministero dello Sviluppo economico v. SOA Nazionale Costruttori (C-327/12). This case, referred by the Italian State Council, concerned the question of whether EU law prevents a Member State from adopting legislation that imposes a scheme of compulsory minimum tariffs on attestation organizations.

At issue are the Società Organismi di Attestazione ("SOAs") that supply certification services to undertakings seeking to participate in procedures for the award of public works contracts. National law imposed upon the SOAs the obligation to participate in a scheme of compulsory minimum tariffs for these services from which they could not derogate. This scheme thus prevented them from setting prices below a certain level, thereby potentially reducing competition.

The Court of Justice judgment first of all shows that an obligation under national law to participate in minimum price schemes does not necessarily breach EU competition law. In this particular case, the Court of Justice did not find any evidence that the national legislation at issue encourages practices contrary to Article 101 and 102 TFEU. In addition, it ruled that the SOAs cannot be considered to be undertakings to which Italy has granted special or exclusive rights under Article 106(1) TFEU. The reason for this is that all SOAs have the same rights and competences in the context of the relevant certification service market and new SOAs are able to enter this market. The Court of Justice thus concluded that EU competition law does not preclude the adoption of the national legislation at issue.

At the same time, the obligation to participate in this scheme must also be assessed in relation to other aspects of the EU's internal market. Even though it is in line with EU competition law, the obligation as such could still violate the EU's rules on free movement. In this case, the Court of Justice determined that the obligation to participate in the scheme forms a restriction on the freedom of establishment (Article 49 TFEU), because it makes it harder for undertakings from other Member States to compete with the SOAs in Italy. The Court of Justice however found that this restriction is justified, because the scheme ensures the quality of the certification services. It also held that the restriction is suitable for attaining that objective, but left it up to the Italian State Council to determine whether the measure does not go beyond what is necessary. The obligation to participate in the scheme could thus still violate the EU's freedom of establishment, despite the fact that it does not breach EU competition rules.

3. General Court confirmed that high market shares (80-90%) do not necessarily equal market power in innovative markets

On 11 December 2013, the Commission's approval of Microsoft's acquisition of Skype survived a challenge brought by two competing producers of internet-based communications services and software: Cisco and Messagenet (case T-79/12).

The Commission had cleared the concentration in 2011 after Phase I investigations, finding that the acquisition did not give rise to competition concerns even on the narrowest possible definition of the relevant product markets. In one of these markets – the market for consumer video communications on Windows-based PCs – the new entity would have a combined market share of 80-90%.

On 11 December 2013, the General Court agreed with the Commission that the merged entity would not acquire a degree of market power which would enable it to significantly impede competition in the internal market and dismissed Cisco's and Messagenet's action. Noteworthy is the Court's acceptance of innovation as an important competitive parameter and disciplining factor in dynamic markets.

Key in the Court's analysis was the fact that the consumer communications sector could be characterized as "a recent and fast-growing sector" with "short innovation cycles". Market shares in innovative sectors are known to be volatile, because the introduction of a new generation of products may allow smaller competitors to capture the entire new market, leaving the incumbent no other choice but to exit. Moreover, not innovating is a hazardous strategy as well, as a firm that does not invest in innovation runs the risk of not being able to catch up with rivals that do. Thus, the Court concluded that: "in such a dynamic context, high market shares do not necessarily indicate market power."

On 20 December 2013, the Dutch Supreme Court ruled that the "statutory conversion" provision in the Dutch Civil Code does not apply to clauses that have the effect of restricting competition (HR 20 December 2013 (BP/Benschop)). Typically, this provisions converts invalid clauses into valid ones, but clauses that violate competition law are null and void and are not converted by this provision.

The case involves a clause in an agreement between the petrol company BP and petrol station holder Benschop, which provides Benschop with exclusive purchasing rights of petrol from BP for twenty years. According to Benschop, this exclusive purchasing clause is in violation of competition law and therefore null and void. Benschop states it has, as a result, suffered harm up to an amount of € 0.06 per litre of petrol purchased from BP. BP argued that, inter alia, if the duration of twenty years is in violation of competition law, this provision should be converted to a contract duration in line with competition law on the basis of statutory conversion (conversie) as stipulated in Article 3:44 Dutch Civil Code.

In an earlier case, the Supreme Court had ruled that for agreements with the object to restrict competition, the conversion provision does not apply in order to safeguard the effectiveness of the cartel prohibition and deter infringements (HR 18 December 2009 (Prisma)). In the present case, the Supreme Court decided that the same applies for agreements that have the effect of restricting competition. Furthermore, the Supreme Court decided that notwithstanding the anticompetitive exclusivity clause, the agreement remains in force, as the remaining provisions are not intrinsically linked to the void clause.

Benschop may now start separate damages proceedings before the Court of Appeal of Amsterdam. This Court had earlier awarded Benschop an advance payment on damages of € 0.02 per litre of petrol it had purchased from BP. In relation to these damages proceedings, the Supreme Court already considered obiter dictum that a right to damages may be withheld from a party that is to a considerable extent responsible for the restriction of competition on the basis of the own fault doctrine (eigen schuld) in the Dutch Civil Code.

This case clarifies the civil enforcement risks of non-hardcore infringements of competition law, such as certain exclusive purchasing clauses. However, the case does not clarify whether contractual conversion would be possible, that is, explicitly agreeing in advance to convert clauses that turn out to be in violation of competition law. In the Prisma case, referred to above, the Supreme Court explicitly left this question unanswered.

On 27 November 2013, the District Court of Central Netherlands declared itself competent to rule on antitrust damages claims against five Dutch elevator manufacturers and their parent companies. The judgment demonstrates that Dutch courts will not readily decline jurisdiction over antitrust follow-on damages claims.

Following a Commission decision in 2007 finding an infringement in the Dutch elevator and escalator industry, East West Debt ("EWD") purchased and bundled the alleged claims of a large number of elevator purchasers. It then started proceedings against the alleged infringers as well as their ultimate parent companies. The defendants subsequently filed preliminary motions, arguing that the District Court of Central Netherlands was not competent to hear EWD's claim.

Primarily, the defendants argued that the court lacked jurisdiction due to the fact that during the infringement period it was a general practice in the industry to contractually agree upon arbitration. However, the defendants could not trace all the relevant contracts and could thus only submit examples, because EWD had not made it clear for which projects it claimed damages. In addition, there was no other way to ascertain the projects to which the claims pertained given that the turnover figures presented by EWD did not match the figures in the administration of the elevator manufacturers. The Court, however, considered that the burden of proving the existence of binding arbitration clauses rested firmly on the elevator manufacturers. Any possible failure of EWD to meet its burden of proof in the main proceedings could not excuse the defendants from not meeting theirs in the preliminary proceedings. The Court thus concluded that by submitting only examples of contracts, the defendants had failed to prove that the parties had agreed on arbitration.

Furthermore, most defendants claimed that the Court could not derive competence from Article 6(1) of the Brussels I Regulation to hear the claim against the foreign (ultimate) parent companies, because the connection with the case against the two anchor defendants was not sufficiently close. The Court, however, considered that separate proceedings would create a risk of irreconcilable judgments, as EWD based its claim on a group tort for which all defendants could potentially be held jointly and severally liable.

On 17 December 2013, the District Court of Düsseldorf ruled against a EUR 131 million lawsuit brought by Cartel Damage Claims ("CDC") against six cement manufacturers. The Court held that CDC had obtained the cement purchasers' claim illegally, given its limited risk for covering the litigation costs.

In March and April 2003, the German competition authority, the Bundeskartellamt, fined the cement producers for a competition law infringement. On 10 April 2013, the German Supreme Court confirmed the decision. After purchasing these claims, CDC brought them before the District Court of Düsseldorf and asserted that the infringement led to an increased price level of cement, thereby overcharging a group of 36 cement purchasers a total exceeding EUR 175 million.

CDC bought the claims of the cement purchasers for a price consisting of both a fixed and a variable component. The fixed part was EUR 100 for each claimant. The variable component amounted to a percentage between 65% and 85% per claimant of the amount awarded or of a settlement sum. The Court considered that the cement purchasers therefore hardly bore any risk of bringing legal action over the claims. CDC's risk was limited as well, because the legal entity that acts for CDC in these proceedings does not own sufficient assets to be able to fully pay a possible cost order, especially the opposing parties' litigation cost. The Court ruled that, as a consequence, the litigation costs risk was shifted from CDC and the cement purchasers to the defendants. The acquisition of the claims therefore breached the German Law on Legal Advice and, being contrary to public morals, the German Civil Code.

The judgment is open for appeal to the Oberländesgericht of Düsseldorf. CDC has already publicly indicated that it will most likely appeal the judgment. In a press statement, released shortly after the judgment, CDC claimed that German law on transferring claims is exceptionally extensive compared to the law of other EU member states.

Related news

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Short Reads - On 27 June 2018, the District Court of East-Brabant ruled on the limitation periods of a damages claim brought by Vestel in relation to the alleged cathode ray tubes (CRT) cartel. The District Court found that the damages claim is not time-barred under Turkish law.

Short Reads - On 13 July 2018, the General Court annulled the EUR 1.13 million fine imposed on Stührk Delikatessen Import GmbH & Co. KG (Stührk) by the European Commission in 2013 for Stührk's participation in the shrimp cartel. The Court ruled that the Commission had failed to adequately state reasons in the contested decision as to why the cartel participants were granted divergent fine reductions.

Short Reads - On 16 July 2018, the European Commission adopted a new Best Practices Code for State aid control. With this code the Commission aims to provide clarity to Member States, businesses and stakeholders about the day-to-day conduct of State aid procedures.

Short Reads - On 20 July 2018, the Court of Appeal of Gelderland published another interim judgment in the ongoing proceedings between TenneT, the grid operator in the Netherlands, and ABB in relation to the gas insulated switchgear (GIS) infringement. After the Dutch Supreme Court had confirmed in a judgment of 8 July 2016 [see our August 2016 Newsletter] that the passing-on defence is available under Dutch law, the Court of Appeal of Gelderland decided to appoint independent economic experts to provide input on the calculation of overcharge and the existence of pass-on.

Short Reads - On 12 July 2018, the General Court dismissed the appeals against the fines imposed by the European Commission in the power cable cartel. The Court also confirmed the EUR 37.3 million fine levied on Goldman Sachs on the basis of its exercise of decisive influence over cable maker Prysmian through one of its funds.

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